ACCC: Standard definitions are not watertight

Competition regulator
Graeme Samuel
has warned that the proposal by the federal government and insurers to introduce standard definitions in insurance contracts could be anti-competitive unless concerns are addressed.

The Australian Competition and Consumer Commission chairman told a parliamentary committee that standard definitions in insurance contracts for floods, storms and other accidents had the potential to lead to less cover for consumers.

“If a standard definition is being used as a means of defining where cover will be excluded, rather than where cover will be included, it doesn’t actually achieve much," Mr Samuel said.

Mr Samuel was reflecting on the decision in 2008 by the ACCC and the Australian Securities and Investments Commission to reject the insurance industry’s push for standard definitions.

“There was no indication as to how it might be used in fairness," Mr Samuel said on Thursday.

“If the same proposal that was put up in 2008 [was put up again], I’d be surprised if I didn’t have the same opinions along with ASIC and the insurance brokers and consumer groups," he said.

The 2008 proposal was knocked back because the ACCC believed it was not going to lead to certainty, was voluntary for insurers and was not going to be adequately promoted by insurers.

The Gillard government is working with insurers and consumer groups to introduce standard definitions in contracts in response to a backlash against insurers following the Queensland floods.

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Many Queenslanders claimed they believed they were insured, only to later find out they were covered for storm flash flooding, not the riverine flooding that inundated thousands of properties and businesses. Similarly, some properties damaged by cyclone Yasi in north Queensland were insured for cyclones but not the closely related “storm surge".

The government appears to be addressing some of the ACCC’s concerns. It is developing a mandatory definition of flood to be incorporated into the Insurance Contracts Act, and a plain-English, one-page summary statement which will help ensure consumers are aware of what their policies cover them for.

Mr Samuel, whose tenure at the ACCC ends in July, said if a standard definition proposal were put forward to the competition regulator again the public benefit would need to offset any anti-competitive detriment.

However, because the government plans to legislate for the standard definition, after consulting with insurers and consumer advocates, the ACCC’s authorisation will not necessarily have to be sought.

The government is likely to liaise with the ACCC on the policy before it is finalised.

“It would need to address the issue of consumer information; of providing a definition that was clear and not going to lead to greater uncertainty and new legal concepts," Mr Samuel said.

“If we were considering the public benefit associated with a standard definition, we might want to have . . . a code of conduct that basically said insured persons, consumers, will need to have drawn to their attention in the clearest possible terms what the impact of this definition is in respect of their individual insurance policy," he said. “It may well be a front-page cover that says you are covered for flood – and flood for this purpose means the following."